The Great Ponzi

Charles Ponzi, a poor immigrant from Lugo, Italy, pulled off an amazing investment scam in 1920 that defrauded U.S. investors of $20 million ($240 million in today’s money). In the process, he perfected the infamous “Ponzi Scheme” that was taken to new heights by the likes of Bernie Madoff, Tom Petters and AllenStanford.

Recently, on its website, Time Magazine listed its Top Ten Swindlers. They ranged from William Miller in 1899, to the recently convicted Allen Stanford in 2012. All 10 had something in common, apart from being crooks. They decided to steal their money by using a Ponzi scheme.

The Ponzi scheme has now become so common that, seemingly, hardly a month goes by without hearing an incident of another one. The financial pages are always reporting them, and those who run them become criminal superstars.

And we are not talking about amounts that run into the hundreds or thousands, or even hundreds of thousands. These are schemes that bring in millions, and sometimes, in the case of three on the list, billions. Tom Petters took in $3.65 billion; Allen Stanford $7 billion; and the man whose name is now synonymous with fiscal immorality, Bernie Madoff, between $50-$65 billion.

Surprisingly, there are still some people who don’t know what a Ponzi scheme is, or how it works.

A Ponzi scheme is amazingly simple to run. Except for some minor details, it is similar to a pyramid scheme.

It begins when a con man finds someone to invest with him. He will likely talk about financial matters, throwing around buzzwords such as hedge funds and high yield returns, and will present himself as someone very knowledgeable in financial matters and investment strategy. He may even hint that he has insiders giving him tips.

One thing he will do is guarantee that you, the investor, will make a larger than average profit on this investment within a short space of time.

The investor does not have to do anything other than sit back and wait for the money to start rolling in.

It sounds like a great deal. Almost too good to be true, which should be everyone’s first warning.

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With the purpose of writing about true crime in an authoritative, fact-based manner, veteran journalists J. J. Maloney and J. Patrick O’Connor launched Crime Magazine in November of 1998. Their goal was to cover all aspects of true crime: Read More